Taking Crown private is a plus

It's a good way out for a beleaguered public company

April 11, 2000|By William Patalon III | William Patalon III,SUN STAFF

For a small public company beset by a long string of losses, a stock price that's in the basement, and a hostile takeover bid, going private may be the perfect remedy, say financiers and experts in the fields of management and law.

A low stock price -- one that management feels doesn't accurately reflect what the business and assets are worth -- is probably a key reason the leaders of Crown Central Petroleum Corp. want to transform the Baltimore company from public to private. With the stock prices of many smaller firms on the floor, despite stock indexes being near their highs, "going private" is a trend that's on the upswing.

"Clearly we are seeing a resurgence," said Woody Davis, a senior partner and head of the corporate practice of Rothgerber Johnson and Lyons LLP, a Denver law firm that counts such transactions among its specialties. "For small-cap ... companies -- which don't have an e-dot or dot-com in their names, and which are being ignored in the market and are undervalued -- this certainly poses an opportunity for managers to say: `Let's buy it back.' "

The motivations for going private are legion. For one thing, the company can be run more cheaply.

Publicly traded companies face mountains of reporting requirements by the Securities and Exchange Commission. Filings on earnings, changes in stock ownership by insiders, acquisitions and divestitures, and any changes in the business that are "material" must be disclosed in specific types of filings.

That can be costly, take time and demand that the company have staff who understand the intricacies, said Stewart Kahn, the founder and chief executive officer of Legend Capital Corp., a corporate finance firm near Los Angeles that has helped companies make the jump from public to private.

Some experts also contend that private companies can be run more efficiently since the managers don't have to worry about the day-to-day fluctuations in their stock price.

But a private company can at times be less accountable for its actions, since it doesn't have to answer a mass of outside shareholders -- such as powerful pension- and mutual-fund companies.

Clearly, being public exposes a company to a lot of scrutiny, which is not always desirable -- especially for a company such as Crown, which has faced pressure from shareholders, a locked-out unionized work force, and, at times, environmental agencies, experts say. Being private allows management to run the company, well, more privately.

Crown's leaders also are likely motivated by a rival bid from another private company that -- if successful -- would put the entrenched management out on the street. For Crown's controlling Rosenberg family, which owns 49 percent of the company's super voting shares, going private removes that threat.

The biggest irony, experts say, is that public companies that go private often end up going public again. And there's a good reason: The managers or other investors who bought out the company when its shares were well below value often wait until the market for their kind of company perks up again, said Davis, the attorney with Rothgerber Johnson.

Then these managers take the company public -- typically at a higher price than what they paid for it.